Thank you Nicholas for your comment and your question.
"But when people say we are living in the midst of the most devastating economic down-turn since the Great Depression, history has it that during the Great Depression, unemployment was at 23%, during the Carter administration it was at 13% and interest rates at 19 and 20% for mortgages, now unemployment rate is a 9% and mortgage rates are at an all time low, how can anyone say this is the worst or most devastating economic down turn since the Great Depression?" comment by Nicholas Goglucci, last post 2/2/09.
This is a very good question indeed and one that conjures profound implications, and you may be right. In order to answer its depth and breadth, and to give it the consideration it deserves, I will use this new post rather than just a quick comment on the last one.
There must be some kind of sun spot or magnetic-field disturbance, because most of the crystal balls on the planet, including my own, seem to be malfunctioning.
So the best I can do is to give you just my opinion based on what I know and what I observe all around me. Whether I am right or wrong is inconsequential, and honestly, I would very much prefer to be wrong ..... but only time will tell...mark your calendar and check back on this post 6 to 12 months from now.
By the middle of 2004, when the market was heating up, I was warning my colleagues that everything was pointing to a real estate bubble and I was giving it 18 months at the most before it popped. I urged people to start thinking about turning their real estate holdings into cash no later than 2006.
By the middle of 2006 it was obvious that the bubble had been pierced, and I warned that based on what I had experienced before, the symptoms on this one were a lot worse, and the prognosis was, to brace and expect at least 7 years from the peak (mid 2005), before we could expect recovery well under way ... that would put recovery at mid 2012.....GOSH, it seems like a long time!
In every instance, I had the same reaction ..... how could I make those claims? ...I was referred to as a doomsayer, chickenlittle and a negative person. This was OK with me, because the truth is, that I consider myself an extremely positive and realistic person.
I spent 10 years of my life as a wilderness and survival guide/instructor, and in that line of work, I learned to consider every factor...weather, physical condition, medical supplies on hand, possible evacuation routes, communication channels, geography, etc......
.....one could say that we considered every possible negative situation and we prepared for every possible negative outcome .....because the reality was ....it could mean the difference between life and death.
I have been to this rodeo before, and I have learned that putting one's head in the sand does not necessarily mean being "positive".
I have learned that, clearly scanning the situation at hand, and gathering as much factual information as possible, will lead to the best educated decisions and increase the odds for survival.....and trust me, we are looking at financial survival as a whole, in these times of uncertainty.
This kind of adversity, also produces incredible opportunities, and there are those who will greatly profit and prosper under these conditions. They are the ones who understand the dynamics of cycles and events, and are poised and prepared to use these massive forces to their benefit......remember that old saying ..."luck happens when preparedness meets opportunity".
But, enough with the preliminaries, let's get down to brass tacks.
Your comparison on unemployment rates is based on the final figures of past events (great depression, Jimmy Carter's era) as opposed to the unfolding, unfinished current conditions.
Current unemployment figures are skewed, because they do not take into account discouraged workers who have given up looking for work, part-timers or even those who have already run out of benefits. The "unofficial figure", if we account for these facts, is more like 16%. In 2009 we may see the "official" figure climb up to around 10% or more.
Now, let's keep in mind that the economy actually started to seriously tank on the last quarter of 2008, ...so we are just at the beginning of a "Great-Depression-like" event .... and GOD, I hope I am totally wrong!
And yes, you are absolutely right, interest rates are extremely low when compared to Carter's days, but then again, we are in the midst of an "unfolding" situation, and these interest rates cannot be artificially kept low for too long.
Just last week, at the World Economic Forum in Davos, Switzerland, China unequivocally, put the responsibility for the current Global crisis on the US for "excessive expansion of financial institutions in blind pursuit of profit." ....I guess it's a mild way of saying "GREED".
Again, keep in mind, that the Great Depression and Carter's days were "National" events .... what we are currently experiencing is a "Global" event, with much different and possible disastrous implications. China is already pulling back from US investments and last year it jettisoned over $26billion in Freddy Mac/Fannie Mae bonds.
Other World players like Europe, Latin America, Russia, the Middle East, and Japan are also beginning to turn a cold shoulder on US investments.
The growing inability of federal agencies, states, counties, cities, and businesses, to pay as promised on their issued bonds, foretells of a busting bond market. And if you remember your first lessons from Economics 101, Bonds and Interest rates are like the pedals of a bicycle,....... when one goes down, the other one must irrevocably go up.
Sure, if an individual is counting on the interest return of their retirement plan to live off of, they might be tempted to get into corporate bonds, as they offer the higher rates of return .... but I caution retirees not to fall into this trap ....
...remember that old saying ....."the best way to make a small fortune, is to start out with a large one"....so the safest place for your money is the one that gives you the least return ...Short Term Treasury Bills ....for now anyways, until the storm blows over.
Last quarter's 3.8% ghastly decline on the economy is just the pre-view to coming attractions. Like a train out of control, the massive momentum of the global economy cannot be stopped on a dime.
As in a runaway train that just hit the brakes, all that inventory that was stored in the back is now coming crashing towards the front, while simultaneously the forward motion (sale velocity) is coming to a screeching halt.
So we will continue to see a massive pile up of inventory on Car Dealerships.... a massive pile up of appliances, electronics, clothing, consumables ......and as the inventory piles up, consumers will hold off hoping for bigger reductions in price, and as retailers continue to discount their merchandise, they pave their road to bankruptcy as they ride the Deflationary spiral.
So don't be surprised if GM and Chrysler become just a shadow of their former selves, ....don't be surprised if household names like Sears, K-Mart, Saks Fifth Avenue, Macy's, GAP, Gottschalks, and Best Buy follow in the footsteps of Circuit City et al....
What about transportation companies like US Airwys, Air Canada, Jet Blue, Airtran which are all at the brink of bankrupcy? ......should I go on? .... would you like the name of more retailers who will fade out into the memory of what once was?
What about the drying up of rental income, as tenants lose their jobs and retailers go out of business? Who will pay the apartment complexes rent and all those big commercial loans? .....yes, but people not paying rent or losing their jobs will have to pay somewhere else, right? ...notice that I said "not paying"...I didn't say "moving out".
People losing their homes to bankrupcy are not necessarily moving out, and freezes are being implemented on eviction notices....so you do the math.
Do we think for a minute that Washington is capable or even willing to bail everybody out? .....the financial bail-out money got already sucked up by the giant black hole at its center ....have you noticed any improvements? ....are loans any easier to get now, than they were last year when Paulson was claiming that if they didn't get their $700 billion that the economy would collapse?
The $1.2 trillion dollar predicted deficit is starting to look like chump change ..... how'bout more in the order of 2 or even 3 trillion dollars!? The Government keeps throwing money at the problem, but it doesn't seem to be working.
We can throw all known economic theories out the window (even mine here today) .... we are venturing onto uncharted territory....common sense is our biggest ally.
Remember that Deflation is like a snake eating it's own tail....it feeds on itself. Deflation is eating up the value of stocks ..... look at what is hapening to B of A, KB Home, Citicorp, Carnival, Scripps .....their dividends are being shot down to the tune of 75% to 95%.
But dont' make the common mistake of thinking that deflation is the antidote to inflation ....although seemingly opposed, the fundamentals that drive these two forces are almost completely unrelated, and having one, does not necessarily mean that we cannot have the other.
So JimmyCarter's days, pale in comparison to what is going on right now.
I think I'm going to stop now..... I don't want to give you the impresson that I am on a negative rampage .... just trying to be realistic.....
I am actually very positive about this whole thing, and if we make reference to THE THEORY OF CHAOS, we will realize, that just as a series of negative feed-back loops got us to where we are today, that our creativity and enthusiasm can put into play a series of positive feed-back loops that will get us back on track to a more harmonius and holistic lifestyle.
As that old chinese proverb would state ..."the fluttering of the wings of a butterfly can set in motion events that can create a typhoon on the other side of the world" .......WE ARE THE WINGS OF THE BUTTERFLY.